[Economy] Inside in General Budget 2015 - 2016

There were some big new developments in Saturday’s budget, but the stories emerged from the Budget’s fine print, not the speech in Parliament.

1. The biggest story of this Budget is a major change in the way the Union Government spends its money. Earlier this week, Finance Minister Arun Jaitley announced that the government had accepted the recommendations of the 14th Finance Commission and raised the States’ share in the net proceeds of union tax revenues from 32 per cent to 42 per cent.With more of its pie going directly to States to spend as they like, the Union Government would begin reducing its allocations to the State plan and wind up some Centrally Sponsored Schemes. This has already happened in this budget.The major change is a big increase in States’ share in taxes and duties, and a big decrease in plan assistance to States and UTs. The bottom three categories make up transfers to States; as a proportion to total government spending all transfers to States taken together haven’t grown.

In absolute terms, total transfers to States have indeed grown.

2. What does this mean for Central Government spending on major welfare ministries and key social sector schemes?

The cut has been particularly dramatic for some; the Panchayati Raj Ministry has gone from Rs. 7,000 crore in last year’s Budget estimates to Rs 3400 crore in the revised estimates to just Rs 95 crore in this Budget, data compiled by Yamini Aiyar, director of Accountability Initiative, shows.Of course, the money hasn’t been ‘cut’ so to speak; more money has gone to States which are now freer to spend the money as they choose. “We shouldn’t call it a fall. The money has gone to States and it is up to them to spend it on important sectors like health and sanitation,” an official of the Ministry of Drinking Water and Sanitation told The Hindu.

3. Where does this leave major official schemes?

Some have been completely wound up; these include the Backward Regions Grant Funds, a scheme for the strengthening of panchayats, a scheme for the modernisation of police forces, and the National e-Governance Plan. States have to decide whether they would like to continue with the scheme or not. For an additional 24 schemes, States will now have to shoulder a greater burden as the Union Government takes a step back. These include flagship schemes including the Swachh Bharat Abhiyaan, the National Health Mission, the Rashtriya Madhyamik Shiksha Abhiyaan, the Integrated Child Development Scheme, the National AIDS and STD Control Programme and the Rural Housing scheme. Thirty-one schemes, including the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS), the Mid Day Meal Scheme, the Sarva Shiksha Abhiyaan and scholarship schemes, will remain fully funded by the central government.

4. Spending on Defence grew a little and spending on subsidies fell a little; the gap between the two as a share of total expenditure is the smallest it has been in a while.5. Borrowings form nearly a quarter of the government’s receipts; India’s internationally low tax-GDP ratio has not improved yet.6. The share of schemes focussed on women in the total budget is extremely low, data compiled by my colleague Ajai Sreevatsan shows. But as he points out, more money has gone to the States, and presumably they should be making their own women-friendly schemes.

7. Tax concessions and relaxations on customs duty and excise - collectively known as revenue foregone - are meanwhile a large and growing amount, up to Rs 5.89 lakh crore in 2014-15. Exemptions on diamonds and gold are the biggest contributors to revenue foregone.

To put that number in perspective, the total revenue foregone by India in tax exemptions in 2014-15 was more than the amount the Indian government needed to borrow from the market in this last year to be able to fully fund its budget.